Slicing Pie at the International Startup Festival in Montreal

Perfect equity splits for startups

You and a partner go in “50/50” on a new business. You do all the work, he owns half the company. Now what? Traditional equity splits are never fair. Someone always has more than they deserve at the expense of others. Contrary to conventional wisdom, there is a simple method for dividing equity in an early stage company that tells you exactly the right number of shares for each participant. Attendees will learn how to implement a practical dynamic equity split using an allocation framework that tells you how many shares each person gets, and a recovery framework that tells you the fair buyout price (if any) in the event that someone leaves.

Mohamed Farag

Hi Mike, I have a question regarding the model and I’ll phrase on the example you gave in the presentation. So before the Series A fund, the slices are contrubuted through a rich uncle with cash injection and non-cash/cash contributions from a founder and a marketer. As the latter 2 keep working they’re adding slices to the pie. The question is, wouldn’t that eventually eat up the rich uncle’s investment? so hypothetically a 2x cash injection of the founder’s market value will be eaten up in a year given the difference in the cash and non-cash multipliers unless the rich uncle pays salaries to avoid more slices being added and effectively freeze the pie till revenues catch up. Is that considered fair for the rich uncle ie to pay a initial investment and have a diminishing ownership?